The specification of positional information is a long standing question in developmental biology. The TGF-beta family member dpp plays a central role in patterning the dorsal-ventral axis of the Drosophila embryo: dpp is absolutely necessary for the production of all dorsal cell fates; moreover increasing concentrations of dpp are sufficient to specify all positional values within the embryonic ectoderm. While the dpp gene is uniformly expressed over the dorsal 40 percent of the embryo, genetic experiments indicated that dpp activity is subject to spatially-restricted, post-transcriptional regulation over the dorsal-ventral axis. The elucidation of the mechanisms underlying this post-transcriptional regulation will provide important insights into the nature of this patterning process. Furthermore, experiments that have been conducted over the past three years have indicated that the mechanism for dorsal-ventral patterning has been conserved between arthropods and vertebrates; thus, the knowledge gained from a detailed genetic and molecular analysis of dorsal-ventral patterning in Drosophila is likely to be directly applicable to the vertebrate embryo. Previous work had shown two TGF-beta type I receptors, TKV and SAX, are necessary for dorsal-ventral patterning. Injection of mRNA encoding the activated receptors into embryos lacking dpp signaling demonstrated that increasing levels of activation of TKV are sufficient to recapitulate embryonic dorsal-ventral pattern. Conversely, activation of SAX was without phenotypic consequences. However, sax activity synergizes with tkv activity to promote dorsal development. Functional experiments suggested that the receptors have different ligands: DPP acts through TKV, while a second TGF-beta needed for dorsal-ventral patterning, SCW, is a component of the SAX ligand. Furthermore SOG, a ventrally expressed negative regulator of dpp signaling, preferentially blocks SCW activity. These results have uncovered a novel mechanism for post-transcriptional regulation of dpp activity: modulation of DPP activity by the spatial regulation of SAX signaling through the action of SOG on SCW. The first two specific aims of the proposal focus on the signal transduction pathways downstream of the TKV and SAX receptors. The first aim is to characterize the synergy between the TKV and SAX receptors. We propose experiments to determine whether synergy occurs at the level of receptor activation, action on the MAD/MEDEA signaling complex, or formation of different transcriptional complexes upstream of specific target genes. The second aim is to identify intracellular negative regulatory components of dpp/scw signaling. The third and fourth specific aims focus on the extracellular components that regulate dpp/scw activity. In the third specific aim, we test the hypothesis that SOG facilitates the diffusion of ventrally-produced SCW to dorsal regions of the embryo, thereby elevating SCW signaling dorsally. The fourth specific aim is to determine the role of the twisted gastrulation gene, which encodes a novel secreted protein required for dorsal structures. The last specific aim is to address the question of specificity between the DPP and SCW ligands. We have assays for the activities of both ligands, and we will perform domain swaps to determine the amino acids that result in specificity, both for receptor activation and for interaction with SOG.